It’s been a tough couple of years for India. With a number of foreign currency convertible bonds (FCCBs) coming up for redemption and the trade deficit – expected to hit $180 billion this year – means that the current account deficit will go up from 2.3 per cent in 2008-09 to 3.9 per cent in 2012-13. And it could run up further.

Worried with the flight of dollars, both the central government and the Reserve Bank of India have aggressively announced measures for dollar inflows. Some of these include increasing the debt cap for FII investments, liberalising laws for raising money through ECBs and so on.

Meanwhile, the rupee has continued to depreciate. If one goes through the amount invested by foreign institutional investors in debt instruments between January and October 2011, it stood at $4.29 billion or Rs 19,403 crore. This year, they have invested $6.81 billion or Rs 35,964 crore. Our dollar inflows in equities are also significantly high.

What’s interesting is that while in dollar terms, the growth in debt investment is 58 per cent, in rupee terms, the growth is a whopping 85 per cent – or 27 percentage points more. The difference is due to rupee depreciation. In other words, a dollar is buying a lot more rupees this year. And this is despite the huge flow of dollars coming.

The reason, as all of us know, is high import bills of oil and gold. While most experts agree that slowdown in oil imports is tough, they agree in unison that gold has to be discouraged.

In 2011-12, we imported as much as $62 billion of gold. The government needs to do something fast to discourage more gold imports. Another step that is urgently required is reducing our trade deficit – $ 25 billion – with China.

What we also need is a comprehensive export strategy. As a banker says, “We export cheap labour and import high-value commodities. We need to change this mix. Much like the Textile Upgradation Fund Scheme in textiles, we need an export strategy with other commodities to increase our share.” Of course, these are all medium-to-long-term strategies.

In the short-term, a millennium bond kind of issue that State Bank of India had done in year 2000 might help. Since the money will be raised in dollar terms, it will not hurt the rupee. But given the pressure on the rupee, it needs to be done fast.